Limited liability companies in Massachusetts, like in other states, can either be managed by the LLC’s members or by one or more managers the members choose. Both management structures have their benefits and can suit different types of owner involvement. But what if you want to change your member-managed LLC to one that is manager-managed? Luckily, it’s a fairly straightforward process, if you plan for the possibility in your LLC’s operating agreement. We’ll show you how it’s done in this article.
What is an LLC Manager?
Some Massachusetts LLCs are run by managers hired by the member-owners of the company to run the business. One of the LLC’s members could be designated a manager, or an outside individual, a management company or other business could take the role. In these cases, the manager makes day-to-day business decisions for the company, with the LLC members being less directly involved.
Managers, even members appointed as managers, are usually treated as employees and receive a regular salary for their work, unlike non-manager members who are paid through distributions and draws of capital funds. Managers also need to be covered by whatever benefits the LLC offers regular employees, while non-manager members are often allowed to forgo such coverage.
Member-managed vs manager-managed LLCs
While member-managed and manager-managed LLCs can both accomplish the same things, they significantly change the internal workings of a company. Both types of management have distinct differences, and can appeal to different sorts of owners.
Member-managed LLCs leave all the daily decision-making in the hands of the LLC members. The owners get to decide everything, from break policies to sales strategy. This is a good strategy for small LLCs looking to minimize costs, but it also suits many owners who like having direct control over the direction of their business.
By contrast, manager-managed LLCs work well for larger companies with many members, making it difficult for all of them to weigh in on run-of-the-mill business matters. Manager-management also works well for LLCs with members more interested in maintaining privacy, as a manager’s name will be used on virtually all public records pertaining to the business instead of the names of the LLC’s members.
How to Add a Manager to Your Massachusetts LLC
In Massachusetts, member-management is the default structure for an LLC. Per MA Gen L ch 156c § 24 an LLC can only be manager-managed if allowed to do so under the terms of its operating agreement.
With provisions for hiring a manager in the operating agreement, members are free to install one within their company however the agreement allows. If the LLC’s operating agreement does not allow for the hiring of a manager, members will need to amend the operating agreement if they wish to employ a manager.
Update your operating agreement
Any member of an LLC can propose changing the operating agreement to reflect a shift in management, but all members must unanimously approve the change. The process of approving an amendment to the operating agreement is as follows:
- Hold a meeting
- Propose a change in structure from member-managed to manager-managed
- Members vote
- Adopt the resolution if unanimously approved
- Update internal operating agreement to reflect changes
- File a Certificate of Amendment with the state
File an amendment to the LLC’s Certificate of Organization.
Under MA Gen L ch 156c § 13, when an LLC changes from being member-managed to manager-managed, it must file a Certificate of Amendment with the Massachusetts Secretary of the Commonwealth, Corporations Division. Filing a Massachusetts LLC amendment is fairly straightforward, but the Corporations Division does not provide a form, so you’ll have to draft your own amendments to submit.
Your amendment must include the LLC’s:
- Federal employer ID number
- Date the original certificate was filed
- Name and address of each manager
- Name and address of people authorized to execute documents if there are no managers
- Name and address of people authorized to execute, deliver, or record instruments regarding real property
- Amendment text relating to the change to manager-management, and
Filing an amendment costs $100, and can be submitted online.